Effect of market type in continuous environments: The need for intermediaries

Much research on automated market design has focused on auction mechanisms that require both a centralised auctioneer and strategic behaviour of individuals to achieve competitive outcomes. This new research investigates the performance of several market types in terms of global efficiency and individual trader outcomes in a continuous environment. It is argued that under these conditions a quotedriven intermediary market can overcome the limitations of auction approaches. Moreover, such a market obviates the need for strategic behaviour in individual traders thus simplifying their design. Simple adaptive approaches to marketmaking are shown to be sufficient to obtain competitive outcomes in a relatively stable continuous trading environment.